Woodworth v. Huntoon

Mr. Chief Justice Walker delivered the opinion of the Court: A careful examination of all the evidence in this record fails to show that Stevens was not a bona fide purchaser of the note without notice of the defense of usury. Brown, who made the purchase as his agent, testifies, that he had no knowledge that the note was tainted with usury. He also testifies that appellant, Alvin Woodworth, solicited him to purchase the note, and assured him it was all right. But the instrument being negotiable and past due, he took it precisely as it was held by his assignor. If Mary P. Huntoon held it free from the defense of usury, he by his purchase succeeded to her rights. A note, tainted with fraud or other infirmity, passing into the hands of an innocent purchaser, not chargeable with notice, and for a valuable consideration, he acquires it purged of the defense, and any other person acquiring it of him succeeds to his rights in the same condition he held them. A defense to the instrument in the hands of the original holder, having been thus cut off, is not revived by the note being again transferred. The assignment of this note to Mary P. Huntoon was before its maturity. This raises the presumption, until it is rebutted, that she received it without notice, and in the due course of business. It then devolves upon the party contesting the good faith of the transaction to show, that she had notice of the usury, or of such circumstances as would lead to notice, at the time she purchased. In this we think the evidence fails. It is denied by the answers of the payees. The principal circumstances relied upon to prove notice is that she is sister of one of the payees. This of itself is not sufficient to impeach the transaction. Persons occupying that relation may and frequently do sell to, and buy property of, each other on precisely the same terms as they do of strangers. This fact, in connection with other circumstances, may be taken into consideration to determine whether the transaction was real or only colorable. There is nothing to show that she was not possessed of ample means to enable her to purchase notes, and if disposed to do so, it is natural that she should as readily purchase of a brother as of a stranger. The usury is admitted by the payee, in his answer, and inasmuch as it can not be interposed as a defense to or relied upon for a decree against that amount of the note, can a decree be rendered against the payee for the usury % Had he continued to hold the note, there can be no doubt that the amount of the usury reserved might be deducted and a decree rendered for the balance. He has, by the sale of the note, prevented the defense to the note, has obtained money which, in equity and good conscience, he has no right to retain, and which the law forbids him to receive. It is true that he has not received it from the makers, but from third persons. It was not paid by the makers, and its payment by a third person does not estop them from insisting upon having it refunded. He has received this amount which was not owing him under the law, and has compelled the makers to pay that sum to the present holder. Suppose the note had been free from taint of usury and the makers had paid this sum, and it had not been credited, and the note sold before maturity, would any one doubt his liability to the makers % And, in principle, the two cases are the same, one is equally a defense as the other, and in each it would be the wrongful act of the payee which deprives the makers of their defense to the note. Courts of equity will, as a part of their inherent jurisdiction, lend their aid to recover back usury paid by the borrower, beyond legal interest. Story’s Equity, § 302. It is said, in Fonblanque’s Equity, vol. 1, 245, that, “ in usuious contracts, there is no doubt but equity will give relief to the borrower in case where the law will not reach him, as it is unjust for the lender to hold such exorbitant gains, and the borrower can never be considered partieeps criminis, but rather deserving compassion than punishment.” Before equity adopted this rule it had been held by the English courts of law that usury actually paid could not be recovered back by the borrower. Tompkins v. Bernett, 1 Salk. 22. And it seems that equity assumed jurisdiction because the borrower had no adequate remedy at law. But in more modern times, the ancient rule of the common law courts has been relaxed and it may now be recovered in the English courts by an action for money had and received. Browning v. Morris, Cowper, 192 ; Jaques v. Galightly, 2 Blk. 1073; Astley v. Reynolds, Strange, 915. On the one hand, courts of equity will not relieve the debtor by declaring the contract void, and thus aid him in perpetratlug a fraud, but will require Mm to do equity by paying the principal with legal interest; on the other, it will not aid the usurer in perpetrating a fraud, by enforcing his illegal and unconscionable bargain. But to prevent fraud it will decree the repayment of the usury received from the debtor, and only permit the creditor to have his money with legal interest. It will not lend itself to aid either party in committing a fraud, but will require both parties to do equity; even if a court of equity would not entertain a bill for the recovery of usury already paid, it will interpose to prevent its collection, or to compel an assignor to pay the usury to the makers of the note where the assignment has cut off the defense. It will prevent such fraud. In this case Huntoon should not be permitted, by transferring the note before its maturity to an innocent holder, to consummate his fraudulent purposes, and thus acquire and hold money which the law has said he shall not have. The payment of the usury by Mary P. Huntoon, when she purchased the note, may be treated as money paid for the use of the makers. And in this case equity will require him to pay the usury over and above legal interest to the makers of the note. This relief may be granted under the general prayer, not being inconsistent with the special prayer for relief. The court below should have rendered such a decree. The decree which was rendered being erroneous, it must be reversed and the cause remanded.